A Progressive Argument for a Flat Tax

Democrats and Republicans will only agree to changes in the tax codes if forced to by their caucus or in exchange for tax contributions. The debt default is looming, so let’s strike a deal.

A deal that requires no passage of a debt extension – now, or ever again.

A deal that protects social programs while creating incentives to make them more efficient.

A deal that allows a Democrat in the White House and a Democrat majority in the Senate to pass a series of core Republican initiatives – how’s that for reaching across the aisle?

A deal that will make the business lobby happy and create millions of new jobs for unemployed and under-employed Americans.

Tax subsidies without representation is tyranny.

The US tax code is more than 50,000 pages. Few among us have any idea of what is really in there. Much of the tax code was written decades ago to correct wrongs, incentivize or favor one economic group, investor, industry or corporation. Rather than even attempting to fix something politically impossible to fix, I propose that in exchange for striking all current tax regulation1, we:

Pass a balanced budget amendment requirement with tax rates to be set each year based on the CBO estimate of authorized spending and projected emergencies (war, for instance) requiring only a conference committee finding and a simple majority vote not subject to Senate filibuster rules to pass:

A flat personal income tax – the same tax rate paid for every individual with:

An exemption of $6,0002 for each person or a standard deduction of $15,000;

An exemption for charitable contributions up to $2,0003 to incent personal investment in important personal causes that help us all;

A continued exemption for contributions to a retirement, education or health savings account;

End all corporate taxes with a requirement that corporate income, no matter where in the world it is earned, be dispersed as dividends to shareholders4;

End payroll taxes for Social Security, Medicare and Medicaid getting the fiction that there are “trust funds” and removing those intra-governmental holdings from the national debt – which, by the way, would end the need to pass an extension of the national debt.

Yes, it would mean that any special break would have to be a direct subsidy including businesses or groups, energy initiatives, capital gains and home ownership2.

Yes, it would mean the payroll tax income limit capped at $106,800 in income (2010), would end, but so would the employer share of payroll taxes.

Yes, it would end double taxation of corporate profits by their shareholders.

Yes, inheritance, beyond the tax household, would also be subject to the flat tax. However, existing trust and charitable exemptions should continue to apply.

Yes, it would end an industry of the more than 1.2 million Americans employed as tax preparers and have negative economic impact on the US Postal service, the IRS, tax attorneys and the printing and paper industries. (Perhaps, at some time, if they have friends in Congress, they could receive a subsidy to be reeducated.)

Yes, a zero tax rate would be a huge benefit to business, especially small business. Large corporations simply do not pay at rates anywhere near the tax rates anymore. Small businesses do. Millions of new jobs would be created. Companies now sheltered in off-shore tax havens could finally be repatriated.

Yes, it would directly impact foreign investment in the US. Investors who earn money here would be required to pay taxes. Seems fair.

Yes, this plan, at least on paper, unfairly benefits the higher income taxpayers and is inherently unprogressive. However, that does not pass the real life test. The earnings of the very rich earn are deferred, unearned, sheltered and buried in million dollar losses – their effective rates would go up. If future Congresses want to address this, let them.

Yes, it would absolutely make each Federal expenditure have direct political consequences in its direct impact on the tax rate – that includes war, corn ethanol and new office buildings.

Yes, there would be huge incentive for our politicians to get as many people working as possible since each would be figured into the tax rate.

No, it would have little direct impact on state taxes. Each state would have to decide. Sure, there would be less competition for industry displacement using tax incentives, but we can all live with that.

What would the rate be? Nobody knows. I believe it would likely be about 25%.

Here are some examples based on a family of four (not retired), comparing current tax rates that include self-employment taxes (Social Security, 10.4% and Medicare, 2.9% taxes up to $106,800) with a 25% flat rate:

Income

Subject to Tax

Total Tax

Effective Tax Rate

Subject to Tax

Total Tax

Effective Tax Rate

$17,000

$5,400

$3,961

23.3%

$0

$0

0.0%

$69,000

$57,400

$19,527

28.3%

$45,000

$11,250

16.3%

$139,350

$127,750

$49,042

35.2%

$115,350

$28,838

20.7%

$212,300

$200,700

$73,648

34.7%

$188,300

$47,075

22.2%

$379,150

$367,550

$139,324

36.7%

$355,150

$88,788

23.4%

$1,000,000

$988,400

$364,204

36.4%

$976,000

$244,000

24.4%

This is a serious outside-the-box suggestion to an extraordinarily complicated problem (click here for my suggestion for solving the immigration issue). I encourage you to ask your questions and express your concerns in the comment box. It is not perfect, but far better than status quo. If you like it, please send it to someone who can make a difference – a Congresperson, or a lobbyist.
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1 Allowable business expenses would need to be defined for such things as charity and political contributions, allowable travel and entertainment; employee benefits and executive compensation; deferred options; etc. Specialized taxes and fees for service (toxic waste clean up, FDA approval) would need to be reviewed separately.

2 $6,000 is an example. A balance would need to be struck between a progressive figure and one that simply recognizes the cost, including health insurance of non-income earning household members (BKA: children, disabled, retired, etc.) and the minimum cost of a residence. In large part, this deduction is intended to minimize the loss of the homeownership tax deduction for taxpayers who itemize and progressively address tax rates for middle to lower income taxpayers.

3 This limit is intended to incent charity without unfairly benefitting an economic group or a specific charity. I’m flexible here.

4 The requirement should allow for some retained income and reserves, and should be averaged over a number of years. Shareholders, including holding companies off-shore would be required to file tax US tax returns subject to the Federal tax rate.

I’m just a plateaued-out plain person with too much time on his hands fighting the never ending lingual battle with windmills for truth, justice and the American way or something like that. Here are some reader comments on my writing: “Enough with the cynicism. One doesn’t have to be Pollyanna to reject the sky is falling fatalism of Lee Leslie’s posts.” “You moron.” “Again, another example of your simple-minded, scare-mongering, label-baiting method of argumentation that supports the angry left’s position.” “Ah, Lee, you traffic in the most predictable, hackneyed leftist rhetoric that brought us to the current state of political leadership.” “You negative SOB! You destroyed all my hope, aspiration, desperation, even.” “Don’t you LIBERALS realize what this COMMIE is talking about is SOCIALISM?!?!?!” “Thank you for wonderful nasty artful toxic antidote to this stupidity in the name of individual rights.” “I trust you meant “bastard” in the truest father-less sense of the word.” “That’s the first time I ran out of breath just from reading!” “You helped me hold my head a little higher today.” “Makes me cry every time I read it.” “Thanks for the article. I needed something to make me laugh this mourning.” “If it weren’t so sad I would laugh.” "... the man who for fun and personal growth (not to mention rage assuagion) can skin a whale of bullshit and rack all the meat (and rot) in the larder replete with charts and graphs and a kindness..."“Amen, brother.”